H1 Results - Performance Continues to Strengthen

Outlook

Current year guidance

Trading during the six weeks since the period end has remained in line with the Board's expectations and the Group expects to see growth in profits and free cash flow for the year.  This is after taking into account the in-year impact of the UK Government budget measures which will be effective for the last five weeks of the Group's financial year.

Further guidance on current year profits will be provided in the Peak trading statement on 15 January 2025.

All aspects of cashflow guidance are unchanged, except capital expenditure which is now expected to be lower than previously forecast:

·   Capital expenditure of around £80m (previously around £90m) as a higher proportion of project spending is expensed

·   Net exceptional cash outflow of around £30m

·   Pension contributions of £50m

Other technical guidance:

·   Depreciation & amortisation around £290m

·   Cash payments of leasing costs, debt & interest around £260m

·   Cash tax around £10m

·   Cash interest of around £20m

Additional income statement guidance:

·   Total interest of around £70m (compared to £85m in 2023/24)

2024/25 is a 53-week year. This will have a small impact on sales but immaterial impact on profits and cashflows.

Looking forward

The Group has assessed the impact of recent changes to Government policy including the recent budget. The full year aggregated impact is expected to be an incremental cost to the Group of £32m, including:

·   £9m increase in wages due to National Living Wage increases. This includes the direct impact and the indirect impact of protecting (at least in part) wage differentials. All UK colleagues of the same band are paid the same, so the larger increase in NLW for 18-20 year olds has no impact

·   £12m increase in National Insurance contributions, of which £4m is due to the increase in the Employer NI rate to 15.0% (from 13.8%) and £8m is due to the decrease in the NI threshold from £9,100 to £5,000

·   £9m impact from the pass through of these costs from some of our outsource partners

·   £2m increase from the inflation-based increase in business rate taxes.

Around half of these cost increases were anticipated and there are plans in place to offset their impact. The Group will seek to mitigate the remaining impact as much as possible through further cost saving measures, including process improvement, automation, offshoring, outsourcing and overhead efficiencies. Some price rises are also inevitable.

Despite these unexpected headwinds, the Group expects the P&L to benefit from lower interest costs, and is continuing to target at least 3% adjusted EBIT margin.

Alongside this, the Group will remain focused on free cash flow generation. The Group expects to keep annual capital expenditure below £100m, for exceptional cash costs to fall and to be below £10m by 2026/27, and to keep working capital at least neutral despite continued growth of the Mobile business.  

The next triennial pension valuation date is March 2025 and the current IAS 19 deficit of £143m compares to scheduled contributions of £277m across 2025/26 to 2028/29. The contributions will cease when the deficit reaches zero on a prudent technical basis and the Group is continuing to work proactively with the scheme trustees to maximise value for all stakeholders.

As we announced on 27 June 2024, providing trading continues to be in line with expectations, the strengthened balance sheet and the improving cashflow dynamics underpin the Board's intention to announce a recommencement of shareholder returns no later than the full year results on 3 July 2025.

In the reporting of financial information, the Group uses certain measures that are not required under IFRS. These are presented in accordance with the Guidelines on APMs issued by the European Securities and Markets Authority ('ESMA') and are consistent with those used internally by the Group's Chief Operating Decision Maker to evaluate trends, monitor performance, and forecast results. These APMs may not be directly comparable with other similarly titled measures of 'adjusted' or 'underlying' revenue or profit measures used by other companies, including those within our industry, and are not intended to be a substitute for, or superior to, IFRS measures. Further information and definitions can be found in the Notes to the Financial Information of this report.

Unless otherwise stated, 2023/24 figures have been restated throughout this report to exclude discontinued operations.

We Help Everyone Enjoy Amazing Technology

Chief Executive's Review

The first half of the year saw our performance continuing its upward trajectory with significantly improved cashflow driven by a >50% adjusted EBIT improvement in both Nordics and UK&I.

In the Nordics, we controlled what we can control. The consumer demand environment remains weak but we grew market share, improved gross margin and kept costs under tight control. The business is well invested and is expected to generate materially improved cashflow this year.  

In the UK&I, we stabilised (and slightly grew) our market share, and saw strong performance from Mobile and our B2B business that further boosted growth. Gross margin continued to climb, growing +10bps YoY. Operating costs reduced as a proportion of sales as cost increases were more than offset by operating leverage.

This progress continues to be built on our long-term strategy.

Our strategy starts with "capable and committed colleagues", as it is difficult in a business like ours for the customer experience to exceed that of the colleague. We have supported colleagues with better tools, training and reward, while fostering a collaborative culture of success. In the Nordics we launched our new values "We win together, play together, grow together and are proud to be different together" to a very warm reception from colleagues. Our latest colleague engagement survey saw 78% participation across the Group and saw us maintain a score of 80, which places us firmly in the top 10% of global companies².

Next, we want to provide an "easy to shop" experience for our customers. We saw some notable improvements to both of our channels. In the UK, we re-engineered more than 80 stores, to dedicate more space to categories that are more profitable, and to allow more room for expansion into new categories. We also added electronic shelf edge labelling (ESEL) to 60 UK stores. This is an innovation that has been successful in the Nordics and creates a better customer experience, allows more nimble pricing and saves colleagues' time. We expect to re-engineer a further 33 stores and add ESEL to 40 stores in the second half of the year. Our largest online site, currys.co.uk, which receives over 250m visits per year, has seen over 60 changes that are designed to improve the shopping journey, from easier navigation, searching and filtering, through to an easier checkout, where we now accept all payment types including Apple Pay and Google Pay digital wallets. We have improved the online journey for order & collect, which alongside better store processes has seen order & collect sales grow +15% YoY (and +55% Yo2Y), to over 27% of our online revenue.  

To fulfil this easy to shop experience, we continually improve our already excellent logistics network. In October, the long-term investment in our new Nordics distribution centre started to pay back, as the facility became fully operational. Adding 91,000m² of new capacity allows us to stock kitchens in Jönköping in Sweden instead of Brno in the Czech Republic. This will lead to better lead times and fewer issues for customers, lower costs for the Group and lowers our carbon emissions for kitchens by 75%.

The third leg of our strategy is to create "customers for life" through stickier and more valuable customer relationships. At the heart of this is our unique range of services that help customers afford and enjoy amazing technology to the full, that build us valuable recurring revenue streams, and encourage repeat shopping.

We help customers afford tech through credit, and we have seen UK&I adoption climb +140bps to 21.7%, and active customer accounts grow +15% to over 2.4m. This growth has been helped by launch of Currys flexpay, as well as giving colleagues the tools to sell through credit using their in-store tablets.

We help customers get tech started, through installation and set-up. Our installation services are becoming ever more valued by customers, and 32% of UK big box deliveries now include installation, a rise of +410bps YoY.

Once they have the tech, customers want to keep it working and we give over 12m of them peace of mind through protection plans. As the only tech retailer that operates its own repair facilities, we can offer customers the protection they want at good value. Our circular capabilities enable us to do this efficiently, and during the period over 25% of the parts used in the UK's central repairs had been previously harvested by our operation.

Finally, we help customers get the most out of their tech, with connectivity being the biggest enabler of this.

Our Mobile business is growing, profitable and cash generative. iD Mobile, our MVNO (Mobile Virtual Network Operator) in the UK, has been the standout performer this year. It has grown +32% YoY to 2.0m subscribers, achieving our year-end target well ahead of plans. The recent CMA ruling on the proposed Vodafone-Three merger provides additional confidence in sustaining our excellent trajectory in Mobile.  

Our aim is to continue growing sources of higher margin, recurring revenue such as credit, protection plans and connectivity so that over time our business mixes away from single product purchases to the more predictable, recurring and higher margin revenue streams of solution sales.

Delivering on our strategy helps customers, as seen in higher customer satisfaction and increased market share, and helps us through higher gross margins.

Our gross margins climbed again during the period driven by better bundling of complete solutions, a higher adoption rate of services, continued monetisation of the improved customer experience, discipline on sales stimulation and cost savings.

Our operating costs rose in the UK&I as there was some cost inflation that was not fully offset by savings, we spent more on marketing to drive incremental sales, and we increased investment spend as planned. Over time, a greater proportion of our investment spend has moved into operating rather than capital expenditure, and we evaluate the paybacks and returns generated based on the total spend.

Alongside improved profitability, we have been focussed on cash discipline. Our capital expenditure guidance is £10m lower as we have focussed on executing our plans to maximise returns, and we saw substantial improvements in exceptional expenditure. Our working capital improved despite headwinds of iD Mobile growth and sales decline in the Nordics, as UK&I sales growth and process improvements drove significant working capital inflow. We finished the period with £107m net cash and a pension deficit of £(143)m. This £(36)m net position is by far the strongest balance sheet the Group has had in the decade since the merger.

Overall, we entered our Peak trading period in a robust position with great deals enabled by our strong supplier relationships.

Looking to next year, the UK Government budget is likely to add around £32m of annual cost to our business. We will seek to mitigate as much of this as possible through cost saving measures including process improvement, automation, offshoring, outsourcing and other overhead efficiencies. Some price rises are also inevitable. We will further update on this in due course.

Despite this unwelcome and material headwind, we remain confident. We are the clear #1 brand in all our markets, with a diversified revenue base and a strategy that is working. We remain focussed on generating more free cash flow through improved operating performance, tight working capital management and disciplined capital expenditure to support profitable growth and the long-term success of this business.

Combined with the stronger balance sheet, this will enable resumption and growth of shareholder returns. We will be a business that's increasingly valuable for shareholders as well as colleagues, customers and society.

² Colleague engagement survey, Glint October 2024

Results call

There will be a live presentation and audio webcast followed by Q&A call for investors and analysts at 9:00am.

The presentation slides will be available via the following link: https://brrmedia.news/CURY_IR_24

To participate in the live audio Q&A session, please use the following participant access details:

UK: +44 (0) 33 0551 0200, please quote 'Currys Interim Results' when prompted by the operator 

Next scheduled announcement

The Group is scheduled to publish its Peak trading update, covering the 10 weeks to 4 January 2025, on Wednesday 15 January 2025.

For further information

Information on Currys plc is available at www.currysplc.com
Follow us on LinkedIn and X: @currysplc

About Currys plc

Currys plc is a leading omnichannel retailer of technology products and services, operating online and through 715 stores in 6 countries. We Help Everyone Enjoy Amazing Technology, however they choose to shop with us.

In the UK & Ireland we trade as Currys and in the UK we operate our own mobile virtual network, iD Mobile. In the Nordics we trade under the Elkjøp brand. We're the market leader in all markets, able to serve all households and employing 24,000 capable and committed colleagues.

We help everyone enjoy amazing technology. We believe in the power of technology to improve lives, helping people stay connected, productive, fit, healthy, and entertained. We're here to help everyone enjoy those benefits and with our scale and expertise, we are uniquely placed to do so.

Our full range of services and support makes it easy for our customers to discover, choose, afford and enjoy the right technology to the full. The Group's operations include Europe's largest technology repair facility, a sourcing office in Hong Kong and an extensive distribution network, centred on Newark in the UK and Jönköping in Sweden, enabling fast and efficient delivery to stores and homes.

We're a leader in giving technology a longer life through repair, recycling and reuse. We're reducing our impact on the environment in our operations and our wider value chain and we aim to achieve net zero emissions by 2040. We offer customers products that help them save energy, reduce waste and save water, and we partner with charitable organisations to bring the benefits of amazing technology to those who might otherwise be excluded.

Certain statements made in this announcement are forward-looking. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from any expected future events or results referred to in these forward-looking statements. Unless otherwise required by applicable laws, regulations or accounting standards, we do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise. Information contained on the Currys plc website or the Twitter feed does not form part of this announcement and should not be relied on as such.

Performance Review

The business is managed and evaluated across two reporting segments: UK & Ireland, and the Nordics. The table below shows the combined Group results, with fuller explanations following under each of the individual segments.

Following the disposal of Kotsovolos on 10 April 2024, the Greece reporting segment has been removed from the prior period results.

¹ APM defined in Glossary

UK & Ireland

¹ APM defined in Glossary. ² Prior period restated to exclude discontinued operation costs

Total UK&I sales increased +6%, driven by like-for-like sales growth of +5%. The online share of business increased +2%pts to 45%.

Mobile was the strongest performing category, growing double digits YoY, with growth in iD Mobile and handset-only sales. Consumer electronics saw good growth, boosted by England's performance in EURO 2024 and Computing sales were also positive, with AI technology sales building momentum. This was all assisted by additional marketing to drive sales. Domestic appliance sales declined in a weak market.   

The UK market (excluding Mobile) declined (1.4)% during H1 and our market share grew +20bps compared to last year as we grew share in the store channel by +180bps while our online market share was broadly stable at (10)bps YoY.

Gross margins increased +10bps compared to last year, and +180bps compared to three years ago as a result of the ongoing strategic focus. Operating costs increased as inflationary pressures on wages and business rates were not fully offset by cost saving, there was additional marketing to drive profitable sales and an increased level of investment spending, with additional investment planned for the second half of the year. The investment spend is broadly evenly split between capital and operating expenditure, which is a significant change to even a few years ago when the majority was capitalised.  Although absolute costs were higher year-on-year, operating leverage meant that the operating expense to sales ratio improved by +20bps.

Adjusted EBIT increased to £23m at 1.0% margin, up +30bps YoY.

In the period, adjusting items to EBIT totalled £(6)m, this was mainly the amortisation of acquisition intangibles from the 2014 merger, which is a non-cash item. The cash costs mainly relate to the ongoing costs of non-trading properties within the strategic change programme.

² Prior period restated to exclude discontinued operation costs

Operating cash flow increased +21% YoY largely due to higher profits. Capital expenditure rose slightly YoY, but was still significantly below the level of two years ago, as continued investment discipline was coupled with a shift toward more operating expense expenditure on projects. Adjusting items are described above. Working capital cash inflow of £54m was a significant improvement YoY as the natural benefit of sales growth and internal process improvements more than offset the headwinds from higher mobile sales. In combination, this resulted in segmental free cash inflow of £64m, +£79m better than last year.

Nordics

¹ APM defined in Glossary

Revenue declined by (3)% on a currency neutral basis, with a like-for-like sales decline of (2)%. Online share of business increased slightly to 26%.

In a market that continued to trade poorly, all product categories except consumer electronics experienced a sales decline. Computing and domestic appliances were the worst performing categories, while mobile proved more resilient.

Compared to last year, the Nordic market declined around (3.4)%. Our market share was 27.9% during the half, up +40bps compared to last year as we maintained or took share in every market except Finland. 

Gross margin increased +80bps YoY to a level that is +60bps higher than three years ago. Operating expenses decreased slightly as inflationary cost increases were more than offset by savings and efficiencies.

Adjusted EBIT increased to £18m at 1.1% margin, up +40bps YoY.

In the period, adjusting items to EBIT totalled £(6)m from the amortisation of acquisition intangibles which had no cash impact. The cash costs of £(1)m related to the strategic cost saving initiatives. EBIT increased to £12m.

The operating cash flow was flat YoY at £27m as higher profits were offset by lower depreciation and amortisation. Capital expenditure was £(7)m, with spend relatively evenly spread across our already well-invested store estate, IT infrastructure and distribution facilities. Working capital outflow of £(23)m was driven by lower sales volumes, as payables decreased by more than inventory. Overall, this drove segmental free cash flow of £(4)m, down £(41)m YoY.

Finance Costs
Interest on lease liabilities was £(27)m, a slight decrease on last year due to the fall in our overall lease commitments; the cash impact of this interest is included within "Cash payments of leasing costs, debt & interest" in segmental free cash flow.

The adjusted net finance costs were lower than last year as the company moved into an average net cash position. The net cash impact of these costs was £(6)m, from £(13)m in the prior year.

The finance costs on the defined benefit pension scheme is an adjusting item and was broadly flat year-on-year in line with the assumptions used in the valuation of the pension obligations. 

Tax
A tax rate of 25% has been applied to the adjusted half year results. This is slightly higher than the prior half year adjusted rate of 24% due to a lower proportion of Nordic losses. The cash tax paid in the half year period was £2m, down from £4m in the prior year which is primarily due to a Nordics rebate received in relation to prior years.

The expected full year adjusted effective tax rate at 25% is slightly lower than the prior full year rate of 27% due to a higher proportion of Nordics profits, which are taxed at a slightly lower rate than the UK.

The half year adjusting items tax credit of £4m includes the tax impact of non-headline items in the Nordics.

Cash flow

Segmental free cash flow was an inflow of £60m (H1 2023/24: inflow of £22m) mainly due to improvements in working capital and a reduction in adjusting items. Interest and tax outflows totalled £(10)m as described above, resulting in a free cash inflow of £50m (H1 2023/24: inflow of £4m).

No dividend was paid in the period, in line with the previous year. The employee benefit trust acquired £10m worth of shares to satisfy colleague share awards.

Pension contributions of £25m (H1 2023/24: £18m) were in line with the contribution plan agreed with the pension fund Trustees.

Other movements in the prior year predominantly relate to currency translation differences, which did not repeat this year.

The closing net cash position was £107m, compared to a net cash position of £96m at 27 April 2024. This included £28m of restricted cash (28 October 2023: £27m).

Balance sheet

Goodwill declined £(36)m during the half-year ended 26 October 2024 due to currency revaluation of the Nordics goodwill.

Other fixed assets decreased by £(91)m since 27 April 2024 as capital expenditure was more than offset by depreciation and amortisation of £(41)m.

At period end, total working capital was £(196)m (28 October 2023: £(231)m). Group inventory was £1,328m, (7)% lower than last year driven almost entirely by lower holdings in the Nordics, due to the lower sales and slightly later timing of promotional periods. The group's stock days increasing from 62 to 63 compared to 28 October 2023. Trade payables decreased by £116m to £(1,633)m (28 October 2023: £(1,749)m) in line with the lower stock holding.

Total network receivables are up by £25m compared to year end with an increase in iD Mobile, driven by higher volume of sales, offset by a decrease in Vodafone. Other receivables are up by £111m year-on-year due to timing of collections from suppliers, as well as higher accrued income with an offsetting decrease in trade receivables. Other payables increased by £65m due to the timing of VAT payable, as well as higher accrued expenses with an offsetting decrease in trade payables.

Lease liabilities are £123m lower than 28 October 2023 due to store exits and the renewal of leases at lower average rent.

The IAS 19 accounting deficit of the defined benefit pension scheme amounted to £143m (27 April 2024: £171m). The reduction of £28m during the period was primarily driven by £25m of contributions.

At 26 October 2024 the Group had net cash of £107m (28 October 2023: net debt of £(182)m) and average net cash for the period of £73m (H1 2023/24: average net debt of £(208)m).

During the period, the Group refreshed its revolving credit facility and now has access to a £525m facility that expires in September 2028 (with an option to extend for an additional year) with a syndicate of six banks. The covenants on the debt facilities are net debt leverage <2.5x (H1 2024/25: (0.31)x) and fixed charge cover >1.5x (H1 2024/25: 1.87x).

Provisions primarily relate to property, reorganisation and sales provisions. The balance reduced by £3m during the year as the utilisation of reorganisation provisions for central operations and property related onerous contract costs for closed stores more than offset additions. Regulatory provisions of £2m were released during the period due to updates to estimated obligations.

Share count 

The weighted average number of shares used for basic earnings decreased by 17m to 1,089m since the previous year end due to an increase in the average number of shares held by the Group EBT to satisfy colleague shareholder scheme.

The dilutive effect of share options and other incentive schemes has increased due to improved scheme performance against vesting conditions.